Meal Entertainment - Actual Method FBT analysis

Have you been wondering if there's an easier and better way to review the entertainment account for FBT purposes than the traditional line by line review?

You have come to the right place where I share a better and more efficient way of doing it without sacrificing quality.

Please note that the below information is from my personal experience and does not constitute as tax advice. You will need to consult your tax advisor if in doubt.

Ledger analysis

For a smaller firms,  the ledger analysis is not as bad provided that there is a proper procedure to code transaction to the correct GL account. However for larger firms, it may not be as straight forward due to the large number of transactions throughout the year.

As FBT review is an annual review, it's most likely that company pay less attention to understand what's the underlying issue with it and end up having difficulties in doing proper analysis of the meal entertainment accounts. This will not only cost company more in resources but can also put the company in not favorable position in audit situation.

So, what is the better way of tackling this issue??

Before going to the technical analysis, we need to ensure that the company's "Chart of Account" are properly set up for FBT purposes. this will be the foundation of our analysis platform that enable us to conduct the analysis in a more effective and efficient way.

So let's start off with the step by step process:

1. Review the “Chart of Account” to ensure it has a specific FBT sensitive accounts to capture meal entertainment. For example, setting up 3 separate meal entertainment accounts as below:

a. “Meal Entertainment – subject to FBT”,

b. “Meal Entertainment – Not subject to FBT”

c. “Sustenance”

2. Educate the business to code each expenses to the right account (for more understanding of which are constitutes entertainment for FBT purposes, please refer to this ATO website – they have a good table outlining some examples).

3. Download each ledger and do transactional analysis by using “Keyword search” review in Microsoft Excel (further explanation below). 

Using this approach enable you to quickly identify a group of transactions that need reclasses to the correct account (i.e. from “sustenance” to “Meal Entertainment – subject to FBT” account or vice versa).

"Keywords Search" Review

The idea of this process is utilising Microsoft Excel formula to look for certain pre-determined keywords and flag them automatically. 

Below is an example of how to analyse the meal entertainment ledger.

1. Download “Meal Entertainment – Subject to FBT” ledger account for the period you want to analyse.

2. Create a “keyword” table (“insert” – “Table”) somewhere in your working file. Populate the table with any keywords that you want to search for in the line items, for example keywords that you considered "sustenance” or exempt from FBT.

Below is screenshot example of “Minor and infrequent exemption” keywords.

3. Create a name for the table for the next step (i.e. NoFBT).

4. Apply the following formula to the ledger – refer to screenshot for example.

=SUMPRODUCT(--ISNUMBER(SEARCH(“table name”,”decription cell”)))>0

As per the example above, the formula used in cell “E2” is

 “=SUMPRODUCT(--ISNUMBER(SEARCH(NOFBT,D2)))>0”

This formula will return results as follows:

• “True” – if the formula finds one of the keyword specified in table used in the “description” cell.
• “False” – if the formula does not find any of the keyword used in the “description “cell

5. Filter "column E” to “True”. These represents the FBT exempt transactions due to “Minor and infrequent” benefit exemption.

6. Analyse to confirm exemption and organise a reclass journal to the relevant account (either “Meal Entertainment - Not subject to FBT” or “Sustenance” account).

There you have it, the above method is one of the many effective review processes I implemented into the business and many appreciated the time savings as a result of this.

Obviously there are plenty of other initiatives that can streamline the FBT review process such as setting up a robust “Spendwizard” category for p-card system, providing the relevant education to the business on available exemption and many others. But those are topic for some other time.

I hope you find this article helpful and feel free to leave a comment or question below.